Taking the risk out of international trade

By Judi Smith, Business Development, Aon Risk Services, Aon

Recent trade developments present great opportunities for Canadian agricultural equipment manufacturers to increase exports to both new and existing markets. However, with any new business venture there are risks that need to be considered in order to protect your growing business. Are you aware of regulations in various countries that may impact your business? Are your employees protected? What about privacy rules? Managing your risk requires being prepared and being aware. What follows are potential areas of risk you should consider and be prepared for when you do business outside of Canada.

1. Cash Flow

One of the first conversations we have with our clients is about payment. Do you know how you are going to be paid? Regardless of where your customer is located, you need to be sure you will get paid. Some companies are able to secure instalments, so that by the time their goods are delivered, they have been paid in full. However, for those companies that cannot operate that way, trade credit coverage is used to ensure they will get paid for their work. There are a variety of options available that help companies improve their cash flow and avoid debt loss, and many AMC members use our trade credit team to help them secure the best terms possible. What’s important is to have flexibility and plans in place in case of sudden or unexpected changes in the market. Such changes could impact your customers and suppliers, thereby directly impacting your business. Having best practices in place can help you to improve your cash flow and avoid bad debts.

2. Supply Chain

A common issue we hear about from AMC members is faulty workmanship and inconsistent quality of materials. Supply chain due diligence is a key step in mitigating risk associated with quality. For instance, we have seen situations where manufacturers use foreign steel and have had issues with metallurgical testing. This resulted in their customers questioning the quality of their product. At worst, this can lead to a product recall, and having to re-manufacture the equipment with North American steel. Not only does this negatively impact the manufacturer’s reputation, but the manufacturer has to bear the extra costs of additional raw materials, production expenses, and shipping of replacement product. The delays associated with this type of situation can cause the customer to search out alternative manufacturers to supply them with quality and timely delivery.

3. Fraud & Cyber Risk

An increasing number of AMC members are experiencing the challenges of fraud and cyber related risks. From simple telephone calls where fraudsters present themselves as vendors needing updated banking information, to social engineering schemes, to hacking, AMC members have been caught off guard or unaware by scammers. When no insurance is in place for this type of issue, the financial impact can be devastating. The more international your business, be it distributing or manufacturing, the bigger the risk, but all members need to make themselves aware, be wary and take preventative measures to reduce the risk to the bottom line.

4. Privacy

Privacy laws and regulations are becoming stricter. If you do business in the EU or the UK, a new data privacy regime known as the General Data Protection Regulation (GDPR) came into force in May 2018. The law applies to Canadian companies who do business in the EU or the UK and there are massive fines for breaching privacy under the GDPR.

Similarly, the Personal Information Protection and Electronic Documents Act (PIPEDA) in Canada is currently being developed by the Federal government. Privacy laws for private-sector organizations will be set out similarly to the GDPR. AMC members should also take care to be familiar with U.S. federal and state privacy laws.

Another thing to keep in mind is the security of your clients’ and employees’ information. How is their personal information being safeguarded? We have seen situations where the tax department notified a manufacturer that they were submitting tax returns for employees who had retired or were deceased. This was how these firms found out they had been hacked. AMC members must be aware of the massive fines that exist for businesses that breach privacy laws.

5. Insurance

In our experience, we find that many companies rely on their freight forwarders for insurance requirements. These firms have contractual limitations that protect them. They often share freight and limits between customers. You may find your part of the shared insurance is insufficient should the need arise to collect it. The rule of thumb is if you own it, you should be the one to insure it.

6. Employee Travel

It may be necessary for you to send members of your staff abroad along with equipment you are selling. As an employer, you are liable for your employees. Regardless of whether your employees travel to make a local service call or for an international installation, you have a responsibility to make sure they are safe and have the proper documents required to meet the rules and regulations of the country they are entering.

If you are sending staff to the U.S., we suggest you speak to an immigration lawyer about the various business visas that are available. We have heard that many companies doing business in the U.S. have had employees and senior management turned away because they did not have proper documentation. This can cause inconvenience to the traveller, as well as the inability to deliver the promised goods or services on time. This, in turn, may affect your bottom line. Many companies have travelled successfully under the previous NAFTA agreement. However, if you do get a Customs and Border Protection Officer that goes by the book, we are hearing from some of our clients that Canadian business people who travel to the U.S. need to obtain B1 Visas or other types of Visas depending on the reason for their visit. Service staff may need another type of Visa. We recommend our clients with employees travelling internationally discuss proper documentation requirements with immigration lawyers.

There are many mistakes being made, such as assuming that if the travel is under 180 days, then no documentation is required. This is not the case. Employers are liable for their employees. If a travel situation arises involving an employee who does not have proper documentation or breaks the rules, it can cost you tens of thousands of dollars in legal bills.

If you are nervous about sending your goods to a particular region, then you have to think twice about sending your staff. Kidnap and ransom coverage is available from providers for those who travel to areas that are not safe or are known to have issues. It’s also important to confirm that your Workers Compensation coverage is applicable to and set up for the province, state or country where your employees are travelling.

If you are unsure of what you need to have in place to do business outside of Canada’s borders, or want a review of your current practices, contact an international broker for assistance. Being prepared will ensure you don’t get sidelined with unexpected and potentially catastrophic expenses.

Aon is a publicly traded, full risk services brokerage with offices in Canada and around the globe. Manufacturing (including specifically agricultural), is an important part of our business. Our centres of excellence include cyber risk, intellectual property, trade credit, environmental and financial services. We offer coverage for Directors and Officers, fiduciary, crime, mergers and acquisitions and large enterprise risk. Our expertise includes health and benefits, pensions and group RRSPs as well as a VIP program for owners of companies and their families.